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Simple Trading Rules and the Market for Internet Stocks

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  • Wai Mun Fong
  • Yat Wai Ho

Abstract

We investigate the profitability of moving average trading rules for Internet stocks based on the Dow Jones Internet Composite Index. Consistent with previous studies e.g. Brock et al. (1992), returns after buy signals exceed returns after sell signals. The average buy–sell spread is large and significant even after accounting for transaction costs. Bootstrap simulations based on a version of the dynamic CAPM show that the model is able to replicate the pattern of buy and sell returns. Simulated buy–sell spreads amount on average to more than 39% of the actual spread. However, actual profits are still too large to be explained in terms of risk compensation.

Suggested Citation

  • Wai Mun Fong & Yat Wai Ho, 2001. "Simple Trading Rules and the Market for Internet Stocks," International Review of Finance, International Review of Finance Ltd., vol. 2(4), pages 247-268, December.
    • Handle: RePEc:bla:irvfin:v:2:y:2001:i:4:p:247-268
    DOI: 10.1111/1468-2443.00029
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    Cited by:

    1. Eero P䴤ri & Mika Vilska, 2014. "Performance of moving average trading strategies over varying stock market conditions: the Finnish evidence," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2851-2872, August.

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